2022 ESG Report Analysis | Yili: The Practical Path of ESG

The report showcases Yili's latest progress and practices in ESG from four aspects: "Comprehensive Value Operation," "High-Quality Products and Services," "Zero Carbon, Beautiful Future," and "Shared Prosperity, Beautiful Life."

Thanks to its outstanding performance in ESG, Yili achieved an A-level ESG rating from the international authoritative index agency, Morgan Stanley Capital International (MSCI). Additionally, Yili's subsidiary and Hong Kong-listed company, China Mengniu Dairy Company, achieved an AA-level rating in June 2023, making it the highest-rated dairy company on the Hong Kong Stock Exchange. MSCI is one of the most authoritative ESG index rating agencies globally, and its ratings have become a mainstream reference for international capital markets. This achievement represents international recognition of Yili's ESG management standards and performance in the international capital market.

"Unconventional" Report Release

Alongside the publication of its "2022 Sustainable Development Report," Yili has also released two additional reports, the "2022 Biodiversity Protection Report" and the "Zero Carbon Future Report 2022." This is a rare occurrence in the industry, where multiple ESG reports are disclosed simultaneously. Yili has now released a total of 23 reports, with 13 focusing on sustainable development, 8 on biodiversity protection, and 2 on zero-carbon initiatives. The key focus of these reports is on the company's sustainable development, resulting in comprehensive disclosure of information.

Yili's ESG strategy centers around technological innovation, end-to-end carbon reduction, and building a sustainable supply chain. It is based on the WISH2030 Golden Key Sustainable Development Framework. Through sustainable development background analysis, stakeholder identification, issue identification, and more, Yili has identified 11 environmental aspects, 18 social aspects, and 4 governance aspects, totaling 33 key ESG issues. Using the dimensions of "Importance to Yili's Sustainable Development" and "Importance to Stakeholders," an ESG priority issue matrix has been created, serving as the primary basis for reviewing the company's annual ESG performance. In the following sections, we will delve into Yili's latest sustainable development report from four perspectives.

Product: Global Strategy and Innovation Empowering the Entire Industry Chain

Internationalization is a crucial strategy for Yili. Yili has over 2,000 global partners across 6 continents, spanning 39 countries. Additionally, Yili boasts 75 production bases, distributing liquid milk, powdered milk, and other products to over 60 countries and regions. It has established an international operational layout covering resource systems worldwide, focusing on Asia, Europe, the Americas, and Oceania, in regions with well-developed dairy industries. In July 2022, Yili's New Zealand subsidiary, Westland Milk Products, upgraded its Hokitika factory and launched a new production line for Westgold butter. It is currently the largest butter factory on the West Coast of New Zealand.

While pursuing comprehensive internationalization, innovation plays a pivotal role. Yili has established and invested in 15 research and innovation centers globally and operates 75 production bases across Asia, Europe, Oceania, and the Americas, fostering innovation across the entire industry chain. Furthermore, Yili has continuously improved its innovation and research capabilities through a three-tier innovation and research system. As of 2022, Yili ranks second globally in total patent applications and invention applications within the dairy industry. Innovation is also reflected in product testing. Yili maintains a robust product quality management system, adjusts its management structure, strengthens control measures, and achieves a 100% product testing coverage rate. It has accumulated 20 testing patents and a 100% satisfaction rate for 92 international capacity verification projects.

Environment: Carbon Reduction Across the Entire Chain to Achieve Dual Carbon Goals

Yili's environmental initiatives are well-rounded. In water resource management, Yili has established a Water Resources Management Committee responsible for the company's water resource management strategy and performance oversight. Utilizing the AWARE tool developed by the UNEP-SETAC Life Cycle Initiative, Yili assesses risks based on factors such as regional characteristics and water consumption. As of 2022, Yili has reduced its total water consumption by 1.5% compared to the same period in 2021, resulting in an annual water savings of 1.7 million tons. Additionally, in response to climate change, Yili aims to achieve carbon neutrality across the entire industry chain by 2050. It has set specific targets for 2030, 2040, and 2050, aiming for a carbon intensity reduction of over 50% by 2030 compared to 2012 levels.

On the path to carbon reduction, Yili has taken several measures. Firstly, it has established a top-level carbon management system within the company. Secondly, it employs digital technology to enable energy-saving and carbon reduction initiatives. In 2022, Yili implemented 1,049 energy-saving projects, resulting in a total electricity savings of 70.83 million kWh, the recovery of 980,000 m3 of biogas, and a reduction of 60,000 tons of carbon emissions. Furthermore, Yili is committed to promoting carbon reduction across the entire chain, primarily in product packaging materials, logistics transportation, waste recycling, and suppliers. In terms of product packaging materials, Yili has developed the "Packaging Sustainability 2025 Target and Implementation Path" and launched its first "Zero Carbon Milk." In 2022, Yili achieved a plastic reduction of 4,217 tons. In the field of logistics transportation, the annual total mileage of logistics vehicles was reduced by 95,000 kilometers. Yili has also established carbon data collection and calculation information systems in collaboration with primary and secondary suppliers to expedite the collection and accumulation of carbon data. Incentive mechanisms have been established to encourage the entire industry chain to achieve a zero-carbon future together. As of 2022, 50% of primary suppliers have recorded carbon emissions data in the EHSQ system.

Governance: Strengthening ESG Management Systems and Focusing on Employee Career Development

In terms of corporate governance, Yili has established a four-tier management structure, consisting of the "Sustainable Development Committee - Sustainable Development Management Office - Sustainable Key Issues Working Group," creating a top-down approach of "decision-making, organizational, management promotion, and execution" layers. This ensures the formulation of the company's ESG development strategy, supervision of ESG-related performance and progress, and the effectiveness of ESG management.

Furthermore, Yili emphasizes care for employee health and career development, aiming to create a diverse, equal, and inclusive workplace. On one hand, at the Global Talent Development Center, Yili has set up "Leadership Development Center," "Professional Skills Development Center," and "Digital Learning Center" to provide comprehensive training and development opportunities for employees. On the other hand, Yili invests in employee health and safety, ensuring employee well-being. The proportion of female executives at Yili has been steadily increasing, reaching 16.5% in 2022.

Society: Symbiotic and Prosperous Industry Chain, Supporting Rural Revitalization

Yili continues to empower its industry chain, driving the collective development of its industry chain partners. In terms of industrial finance, in 2022, Yili's industrial chain finance business focused on stabilizing and strengthening the chain, implementing a series of financial support policies. Additionally, Yili has addressed issues faced by farmers and herdsmen in their path to prosperity, such as weak technical skills, financing challenges, high risks, and slow transformation. Yili has established a benefit linkage mechanism in seven areas, including technology, finance, risk, and industry, to uplift 5.6 million livestock and poultry farmers and herdsmen from poverty. Furthermore, Yili has pioneered the "Full Lifecycle" supplier management model within the industry, establishing systematic management mechanisms in seven aspects: supplier development, categorization, performance, capability improvement, relationship management, risk management, and exit management. In 2022, Yili facilitated 17 suppliers in completing factory construction, collaborating with three suppliers to launch a "Factory-in-Factory" cooperation model, initiating a mutually beneficial and win-win development mode.

In addition to this, Yili has been active in social philanthropy. Yili has been conducting public welfare initiatives in the fields of youth, the environment, and the community, with ongoing projects such as "Yili Ark," "Yili Nutrition 2030," "Yili Homeland Action," and "Yili Childhood Dreams in the Same Universe." These initiatives have earned Yili the "Donating Enterprise" and "Charity Project" awards at the 11th "China Charity Award." As of 2022, "Yili Ark" has donated a total of CNY 25.02 million, benefiting over 340,000 children in more than 600 schools across 41 counties and cities in 26 provinces and regions throughout China.

According to a rating report from the well-known ESG rating agency Sustainalytics, Yili has received a high ESG risk rating with a score of 37.2. Yili is ranked 397th among 624 companies in the food production industry classified by Sustainalytics and 13,792nd among 15,620 global enterprises. According to Sustainalytics' risk rating system analysis, Yili's capability in managing significant ESG risks is at a moderate level, with issues such as unclear specific measures for practice-oriented planning. However, with the release of the "Three Reports," Yili is taking on greater responsibility. Yili is not only gradually achieving its goal of "comprehensive value leadership" but is also leading the entire industry in embracing green and sustainable development. It aims to showcase China's example and continue to tell China's story to the world.